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15. Related party relationships are a normal feature of commerce and business. For
example, enterprises frequently carry on separate parts of their activities through
subsidiaries or associates and acquire interests in other enterprises - for investment
purposes or for trading reasons - that are of sufficient proportions for the investing
enterprise to be able to control or exercise significant influence on the financial
and/or operating decisions of its investee.
16. Without related party disclosures, there is a general presumption that transactions
reflected in financial statements are consummated on an arm’slength basis between
independent parties. However, that presumption may not be valid when related
party relationships exist because related parties may enter into transactions which
unrelated parties would not enter into. Also, transactions between related parties
may not be effected at the same terms and conditions as between unrelated parties.
Sometimes, no price is charged in related party transactions, for example, free
provision of management services and the extension of free credit on a debt. In
view of the aforesaid, the resulting accounting measures may not represent what
they usually would be expected to represent. Thus, a related party relationship
could have an effect on the financial position and operating results of the reporting
enterprise.
17. The operating results and financial position of an enterprise may be affected by a
related party relationship even if related party transactions do not occur. The mere
existence of the relationship may be sufficient to affect the transactions of the
reporting enterprise with other parties. For example, a subsidiary may terminate
relations with a trading partner on acquisition by the holding company of a fellow
subsidiary engaged in the same trade as the former partner. Alternatively, one party